Winter's Gloom Didn't Keep Shoppers From Spending in January

Pent-up demand among shoppers and savvy merchandising by retailers beat bad weather as merchants closed out the holiday season and their fiscal year.

The Commerce Department's retail and food services sales tally for January rose to $381.6 billion, up 7.8% from January 2010 and up 0.3% from December. Excluding auto sales, totals were up 5.4% from the year-ago month, and retail sales were 7.7% higher. The Commerce tally is the most complete picture of retail because it includes gasoline, food and auto sales, as well as the results of Walmart Stores (WMT), the world's largest retailer, which doesn't publicly report monthly sales.

The numbers show retailers were careful in stocking up for the holiday, managing inventories and promotions more sharply then ever -- a skill honed during the recession. And consumers have begun to respond, say experts.

"They're shopping, and retailers did a little better job of inventory so they didn't have to give anything away this January," says Alison Paul, vice chairman and U.S. retail leader at Deloitte. Shoppers let out some pent-up demand over the holidays, picking up both gifts and things for themselves. "The old 'one for you, and one for me' shopping," Paul calls it.

What Consumers Are Responding To

For the most part, merchants and manufacturers worked to line up wares that shoppers wanted at prices that were attractive to consumers who are now more frugal, note industry observers.

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"It was a nice match between people looking to buy and the value that retailers have trained themselves to offer consumers," says Laura Gurski partner at consulting firm AT Kearney. "If you put something out there at a price people can afford, you're seeing people respond."

Some retail segments continued to bounce back from the depths of the recession, most notably auto sales, which were up 15.9% over last January. Similarly, building materials and hardware stores were up 6.9% year-over-year. But some of the improvement comes thanks to easy comparisons to weak sales last year: Hardware merchants were still down 2.9% below December. And home-related sectors continued to suffer from the weak housing market, with furniture and electronics stores were down year-over-year, 0.2% and 0.7%, respectively.

"A Tale of Two Consumers"

While sales appear to show momentum in most segments, with January rising over December, some trouble areas persist. Several gift-related retailers had a holiday letdown, most notably book, hobby and music stores (down 1.3% from December), clothing (down 0.3%) and food-and-drink establishments (down 0.7%). Housing-related segments also slowed down after the holiday, with furniture sales down 0.3% and hardware stores down 2.9% below December.

"It's an interesting time, it's a bit of a mixed bag," says Paul. "It's a bit of a tale of two consumers."

Besides the pent-up demand, affluent consumers -- buoyed by the rising stock market -- did a lot of the heavy lifting during the holidays, Paul notes. According to Deloitte's research, households with incomes over $100,000 annually were more confident in spending and carried the day through January, while "families under $100,000 continue to feel the hangover of the recession," she explains.

But overall, the holiday season was one of the strongest in the last 10 years, says Gurski. And gift-card redemptions were low in January, which could push some sales into the next few months, as retailers restock their cleared-out racks, she says. That should give retailers heart as they head into the earnings season this week.